If you’ve got stock in Imagination Technologies (Imagination Technologies Group (LON:IMG)), you’re probably going to want to divest sooner rather than later.
Tech giant Apple (NASDAQ:AAPL) announced earlier this week that it would no longer be relying on Imagination Technology to produce their graphics technology for the famous iPhones and iPads. The smaller tech company took a massive stock hit of 72 percent Monday when the news was announced, and there’s little reason to believe it will get better anytime soon.
Apple was Imagination Technologies’ biggest client by far, providing it with more than half of its total revenue, making the news a massive blow to IT. The maker of the internationally popular and iconic iPhones announced that it had plans to develop its own graphics chip, as well as its plans to abandon Imagination Technologies’ services within the next two years.
If you’re the betting type, you may consider retaining your stock until the release of the iPhone 7S, which may give Information Technologies a slight bump in its sales price. However, that will likely be the last phone that Apple sales using Information Technologies graphics, so after that there’s really no obvious reason to keep hold of the stock.
Oh, sure, Information Technologies has come out in opposition to claims that the company is in danger by pointing out that they have copyrights on the technology that’s been going into Apple devices so far.
Chief Executive Andrew Heath released a statement saying “It would be extremely challenging for Apple to design a brand new GPU architecture from basics, that is, without infringing our IP rights and also infringing our confidential information. As such we do not accept their assertion that they no longer require our technology.”
That’s a risky claim to make. Apple has a history of wriggling out of uncomfortable spots such as this, with Chainsaw Mills one company that comes to mind. The multibillion dollar company will likely not struggle too much with finding ways around the copyright difficulties.
Apple has done this to companies before. When it dropped PortalPlayer in 2006, the company - which generated 90 percent of its revenue from Apple products - experienced significant devaluation and was bought shortly afterwards by Nvidia “for a steal,” according to Fortune Magazine. When Apple dropped Wolfson’s audio chips, the company experienced multiple quarter losses in a row and a severe drop in company valuation.
In other words, when Apple drops a company, it typically hurts that company, not Apple. As Counterpoint Technology Market Research director Neil Shah put it, “it is both a boon and a bane to have Apple is a customer.” The same depreciation is likely to happen to Imagination Technologies.
Right now, along with claiming Apple has no leg to stand on, Imagination Technologies is also saying it plans on attempting to develop alternative arrangements with Apple for their contract in a bid to retain their biggest clients.
The only reason to give Imagination Technologies any benefit of the doubt so far is that as of yet, Apple has not produced any proof that it has an obvious workaround solution to the copyright challenges that their graphics chip provider has pointed out to them. However, that doesn’t necessarily mean the tech giant isn’t hard at work trying to address the issue actively, and it certainly has the time and manpower to come up with one.
According to Techradar, several key IT members made the switch to become Apple employees in October 2016, suggesting that Apple may have some inside trade secrets and experience to help guide them towards an alternative. In the meantime, it looks like losing their biggest client is going to leave a permanent and possibly long-term black mark on Imagination Technologies. Their stock is currently valued at £102 per share. This time last week, it was valued at £270.25 per share. It doesn’t look good.